>> so for some people too big to fail is still there though there's no scientific or legal proof that it is. i guess what i'm asking is, what do you suggest that we do to address that misconception of the market and the misconception of some of my own colleagues that too big to fail is still here? because i think we all agree that we don't want it to be here. it's not here. how do we address that misconception to make it a reality? >> well, dodd-frank has a

strategy, involves making big institutions internalize, take account of the system costs by tougher regulation, higher capital charges and so on. the orderly liquidation authority and strengthening the entire system. so there are steps we're taking moving and attraction. i think the markets will come to see that the steps are effective. of course, we can communicate it, we can say it, but -- >> we have been single for years now and some people refuse to believe it. to you except the general -- there have been some studies that put this subsidy, the alleged subsidy that is there for the too big to fill that doesn't exist anyway, but that mark and perception -- >> yes. i'm sure there are still -- >> i accept that. >> we need to be working -- its decline but we need to be working in the direction of eliminating entirely. >> do you think that subsidy can be quantified in a reasonable way? >> with lots of assumptions and

so on, you can compare what larger banks pay and what small banks and that gives you some sense -- >> be prepared to get a request from you later on. >> there were cited -- there were studies cited in yesterday. >> the gentleman's time has expired. the chair now recognizes the gentleman from north carolina, mr. mckinley, for five minutes. >> thank you, mr. chairman, and chairman bernanke, thank you for your service to our government, to our people. to follow-up on my colleague from texas question, about that policy masking the true cost of our fiscal profligacy, now, the question is would the fed buying 40% of u.s. debt for fy 2013, and with zero or negative real interest rate, isn't the fed the

great enabler of our debt? i understand congress and the president make fiscal policy, but isn't the fed's policy in essence asking the true cost of our debt? >> if i could make three points. the first is that as a share of all the debt outstanding, the fed's ownership is actually lower today than it was before the crisis. we own about 15, 60% of all the debt outstanding. so the interest rate you see on the debt comes from actual market trading between private sector individuals. second point is that as i've emphasized today, there's a very long-term problem here, what's going to matter is the interest rate not today but the interest rate five years from now, 15 years from now, congress i hope as the foresight to see that interest rates will not be this low forever and, therefore, they should take that into account. and then finally, i ask what's the alternative if we raise interest rates substantially just to make it harder for the

congress tomorrow, if at the same time we do damage to the economy and lower revenues and make the deficit even worse i don't see how that's helpful to our fiscal situation. so my hope is that congress will recognize that interest rates will rise over time as our economy recovers and that this is a long-term proposition and they should take that into account in their decisions. >> so in the short run, yes? >> no. again, we'll have about 17% of the total debt outstanding. it is not the case we are buying all the data being -- >> there's 40% -- >> of the new debt but not an average. again from 85% of its circulation and private hands. >> to go to a separate point, the bloomberg report that your recent meeting of the treasury borrowing advisory committee which is a group of senior bankers and investors, they received a presentation that warned the central bank's policies, i'm quoting from "bloomberg news," that warned central banks policies may be

inflating levels and speculative grade bonds and other asset classes. now, is this an acceptable side effect of the fed's expansionary policies? >> as i mentioned, it is a cost of these policies and it's one we take seriously. we look at these, these possible mispricing and we asked ourselves, are they in fact ms. prices? how large are the? and if they are mispricingis, what are the full abilities? if an aspect -- if and asset -- who is owning it? would its change severely endanger financial institutions, those kinds of things. so we are examining this was a great deal of care, and again, i ask what the alternative is. interest rates are low for a good reason, but if, in fact, we come to the conclusion that the

cost of these mispricing's are sufficient and then we to take that into account. >> so to this point about inflation many of us have this concern about how you're going to unwind this unprecedented portfolio that you preside over, or how your successor will unwind this, or your successor's successor. and the concern that we have is that you only can see inflation with hindsight, and the question i have to you is, with a record of 1970s where, in 1973, expected inflation was three points 75%. that was the market expectation. the fed said 3.9. the actual 6.2. 1974 expected inflation was expected 6.7%. the fed said eight get the actual inflation was 11. 1979, expected was 8.3. feds have the -- fed said 7.7

fiber action was 11.3%. 1980 expected at 11% to the fed said 7.5. the action was 13 when 5%. the fed has consistently got it wrong. are your tools better now to see inflation than they were then when we had this great period of inflation speak with our tools are better but the environment is much better. with 25 years of success in keeping inflation low and stable. not just in the united states but around the world. inflation expectations are very well anchored and wages are growing very slowly. >> the gentleman's time has expired. the chair now recognizes the gentleman from georgia, mr. scott for five minutes. >> thank you very much, mr. chairman. over here, mr. chairman. how are you? good to have you again. first i want to commend you for the very courageous and bold work that you have done in the aggressive quantitative easing. in which you have moved very forthrightly to strengthen our

economy with the purchasing of treasury ngsa securities, and i want to commend you for that. chairman, i've always known you to be a straight shooter. have great respect for you. we are on the eve of a very, a very dramatic moment in american history. dealing with this sequestration. and the president of the united states has said it is a terrible thing to do. the democrats have said it's a terrible thing to do. we are fighting to avoid it. the secretary of defense has come before us and said it's threatening our national security. we better not do it. we that are transportation secretary, we have homeland security secretary's come before. yet we have republicans who are saying and who are determined to move ahead and say let's do it. i want you to tell us today, who

is right here? who was telling the truth here? is sequestration something that we should not do? as democrats feel? or something we should do as republicans feel? what's in the best interests of america's? >> you're asking me to make decisions which are not mine, my today. those are congressional decisions. congress has to make those choices. what i'm advising is a more gradual approach. i'm not saying that we should ignore the deficit but i'm not saying we should deal with long-term fiscal issues but i think from the perspective of our recovery a more gradual approach would be constructive. >> when you say gradual, what specifically would gradual mean? give us an example. >> it works all in the same direction. more gradual this is, as long as there's offsetting changes in the further horizon, the less the immediate impact will be on jobs and growth in this recovery in 2013.

>> and you agree that gradual approach contain both spending cuts and additional revenue? >> that again comes back to what congress is responsible for. i don't, i'm not going to comment on the. >> i'm very, very concerned about this, because my home state of georgia will suffer tremendously on this. i represent a district that has lockheed martin, for example, who's already come under tremendous job loss pressure. we are looking at over 60,000 jobs immediately. we are looking -- and those jobs are teachers being laid off, firefighters being laid off. critical, critical manpower. let me ask you, friday comes, we go over the cliff of sequestration.

what should we do next? should we then tried to consistently move to put something in place? and how would you advise us to do that? and what would that stepping they'll? >> again, the specifics are up to you but what if to you but whatever suggested replacing the sequester with something that is smaller, takes hold more slowly, but is compensated for by changes further out in the horizon. >> and do you see a complicating factor with the approaching deadline of the march c.r.? if, for example, we are unable to reach an agreement in four months, what impact would we have with sequestration moving rapidly through the system? massive job let's come all of

the predictions coming true that we feel. and then with our failure to reach agreement on the c.r. at the end of march? >> well, the c.r., i guess would continue government services. i think there is some cost to the economy of these repeated, i won't say crises but these repeated episodes where congress is unable to come to some agreement and, therefore, some automatic thing kicks in. i think that's on the whole but a good thing for confidence, and again as i suggested it, i realize that finding bipartisan agreement is very difficult, but i hope that you will work together to try to develop a less bumpy fiscal path in the near-term. >> thank you, mr. chairman. >> the gentleman's time has expired. we now turn to the other gentleman from georgia,

mr. westmoreland, he is recognized for five minutes. >> thank you, mr. chairman. and chairman bernanke, you are at this point, the federal reserve at this point is buying $85 billion worth of mortgage-backed securities a month, is that correct? >> no siree. it's 40 of mortgage-backed and 45 of treasury's. >> okay. but total of 85? >> yes, sir. >> also talk that we've had about the sequester being 85 billion over a year for the whole federal government i think when you realize what we're doing with these mortgage-backed securities, a kind of puts it into perspective that, you know, are we really, do we really need to be buying that kind of securities every month? >> this doesn't involve any new spending or -- >> just printing money, right? >> it's acquiring securities in

order to reduce interest rates in these financial conditions in the economy. >> at me ask you, i know that you make the decisions as far as what you think it'll take him and i guess the board of governors what you think it will take to run the federal reserve. and as my colleague from georgia mentioned, we represent a state that has had more bank failures that i think any other. i know my congressional district has more than any of the congressional district. what is the federal reserve doing to these banks, who are community banks and they know their communities and they know their borrowers, what is the federal reserve doing to let them have more latitude in making some of the decisions about the banking needs of the community and how they can best sal that? because, you know, what we basically here is that the

regulators, fdic, occ, federal reserve, state regulators are not really letting them answer the needs of the communities. >> we are very interested in the success of small community banks. we agre agreed to play an import role in communities. have a whole list of things. i won't have time but we have a commuter debate council that comes and meets with the board and gives their views. we have a special subcommittee of our supervision committee that is particularly focused on how rules can be made appropriate for smaller banks. we train our examiners to take into account the size of thanks in their particular business models but with all kinds of outreach. we are looking at our rules with the understanding that community banks can't manage the same level of regulatory burden that

large banks can handle. so we are very committed to helping small community banks succeed in this environment, and you have my assurance that that's something we pay a lot of attention to. >> well, i know as i meet with my community bankers and we have a little advisory board for the banking, they are very concerned about basel iii. they're very concerned about the write-downs that they're having to do immediately rather than having some type of period to do it. and i understand you've got all these things, evidently, in place to try to help the community banks. i just haven't seen -- nobody, none of my community bankers have said hey, the federal reserve or fdic or anybody else's trying to help us stay open, or given us some latitude. and so, you know, i just don't see a big help going there.

but i wanted to follow up on one of the questions that's already been asked. what do you think the amount is for a bank to be too big to fail? or is there and i'm not? >> no. first of all, again we're working to get rid of too big to fail, and so any bank that fails would be subject to this orderly liquidation authority. but in designating firms, for example, a system of important which is not the same as too big to fail, we look at not just the size but also the complexity, the interconnectedness to other banks, the kinds of activities they have and so on. so a simple dollar number is not really adequate to describe whether a bank is systemically critical or not. >> well, i hope that, you know, as we continue to talk about too big to fail, that we will also look at the banks that are too small to save. i yield back.

>> gentleman yields back to the lady from wisconsin, ms. moore, is recognized for five minutes. >> thank you so much, mr. chairman, and thank you for appearing and tolerating this long testimony. i have a couple of questions for you. one of the consequences of our almost defaulting on their debt and the whole debt crisis, raising the debt limit, was we saw a lot of chatter around the world about abandoning the u.s. dollar as reserve currency. and i'm wondering, which outlook is -- what your outlook is on the economic growth or contraction of our economy were that to occur and we would lose our status that the u.s. dollar would lose its status as reserve currency? >> let me say first i do see any sign that's happening. the amount of reserves held in

dollars is actually growing, not shrinking. so i think that reserve currency status at least for the foreseeable future is very much intact. if we lost that it would probably have some effect on interest rates that we pay because we would have fewer holders for our bonds, and that in turn might have some impact on our economy. but again, i do think that this is a very likely prospect in the foreseeable -- >> why did we have all the chatter about it, with the larger economies, latin america, china? >> well, of course the world is evolving. the chinese would like their currency at some point to become a reserve currency. there's some distant for them to go before they can get to that point. but as i said, at least in the near-term, pretty close to

two-thirds of all global reserves are held in dollars, and that doesn't seem to be changing very much. >> listen, i want to talk about too big to fail as well. global too big to fail. and a want to say that i was really pleased to see the fdic and the european commission working together to establish a legal framework to create a global system for and winding large and systemically important firms, similar to our orderly liquidation authority. that we created in dodd-frank. is there more that this committee and congress could do towards this effort, or other cross-border efforts? and i would be interested in hearing about other efforts the fed is undertaking to further coordinate global monetary policy. and particularly, with bank regulations standards and to have money laundering efforts, what are other things you may be doing?

>> well, orderly liquidation authority, as you mentioned the fdic which is leading this effort has been working with european counterparts. they publish a paper with the uk authorities, i believe it was a few months ago, the fed has been working very closely with the fdic. recently for example, i attended a tabletop exercise where we pretended that there was a bank failing and asked ourselves what we would do under the laws that orderly liquidation authority provides. financial stability board, which is an international body of regulators, and other international bodies, like the basel committee and so on, have been discussing the issues related to international banks and how they might be liquidated in a crisis. that is the most difficult issue that it think we still have to work on. but we are making progress and there's a lot of international interest in finding ways to work together to do with the institution which crosses many borders. more generally, the level of

international cooperation in regulatory matters is quite high. there are a number of international bodies. the u.s., the uk, and the other major banking centers cooperate quite extensively on these issues. cftc and sec are working on derivative issues. so there's a lot of work going on. our monetary policy, we exchange ideas and discuss the economy quite frequent see -- quite quickly in different cities but we don't courteney in the sense that we agreed as a general matter to take actions together or in some sequence. >> thank you, mr. chairman. my time is limited to just want to make a comment. he may not have time to respond to a. i did notice in your testimony that you noted that all taxing and spending stations that congress makes, comment on what we do, but they are not equal. you know, so for example, you know, lowering taxes on the

wealthy does not necessary have the same impact on our economy as given unemployment benefits to the unemployed, yes or no? >> different taxes and give it spending and different implications. >> the chair now recognizes the gentlelady from minnesota, ms. bachmann, for five minutes. >> thank you, mr. chairman. and thank you, chairman bernanke for being here today. i was reading your testimony, and thank you for giving you. and especially on page seven and eight. on page 70 talked about the sequestration and impact of the sequestration and your concerns about the impact currently on the short term and economic drag that that could bring about. and then the page eight you talked about the fact that at some point down the road we have to deal with our current debt and our current overspending. and hewitt also said in your comments before us that we need to align our solutions with the

problem, meaning, i take it, that the spending reduction shouldn't happen today. they should wait until tomorrow when we really start to have problems. so is that how you would quantify that, yes or no? >> i didn't say we have to get rid of the spending cuts today, but just more gradual combined with longer-term measures. >> so let me ask, very quick kind of technical interest is what i'm looking for. what was a tiny deficit last year? >> -- what was the united states deficit last year? >> i have it right here. it was $1.09 trillion. >> and what is, what was her total national debt for last year? or currently? >> about 11 trillion spee-1 does our current total national debt this year? >> it's currently about 11.5 trillion.

i would have to check spirit not 16 and a half trillion? >> that includes intergovernmental debt like the social security trust fund. but debt held by the public as opposed to do till between different parts of the government is about 11 and a half trillion speak so you're saying that it is 11 and after income and what are the unfunded net liabilities? >> they are very large, particularly in the medicare area but i don't have a number, but they're probably some greater than the actual official debt held by the public. and how much debt do we buy every day from the treasury, from the federal reserve? >> every day? about one and a half billion. >> about one and a half billion. so is it true that without the fed purchases of our debt from the treasury, would we be able to continue the spending level without that? >> yes, you could. as i said before, the fed only

owns about 15% of the outstanding u.s. government debt. >> where would we go? if we didn't have the fed buying that debt, where would we go? >> our debt is in great demand. foreigners hold about half of it. people think it just treasury debt as a safe haven, as a secure investment, and that's why notwithstanding what the fed is doing, that's why we can sell it at a low interest rates. >> so the fed would need to be buying all these treasures within. we define other buyers for our debt, is about to? >> yes. >> so then why are we doing at? >> to keep rates a little bit lower to help support housing, automobiles and other parts of the economy that need more support spent but if there's other buyers, why the fed? >> to get rates a little lower than they otherwise would be. >> so if my 18 year old daughter was spending 40% more than what my husband and i were giving her

and she didn't do that just this month, but she didn't next month and the next month and the next month, and she finally, my husband and i said, which is not going to bail you out anymore, which is not going to continue to finance that overspending that you were doing. and she said to me, mother, we need to align our solution with the problem. in other words, you need to keep giving me that money because it's really not a problem yet. i would say, i think you have a problem today. and the reason why i would say that is because the analogy with the federal government, in january of 2007, our debt was a .67 trillion. that debt today is closer to 16 and a half trillion. with the into government debt according to your calculation. do you think that the problem that in six years we've gone

from 8.67-ton to 16 and a half trillion? >> certainly it's a prop and that's what i think it's important to of measures to bring it out over time. spent but you said we need to align the solution with the problem. it seems to me with a big problem but and i tell you why. when i was home this last week in talking to a lot of women, they were telling me, i don't get this. gasoline at christmas time was $2.99 a gallon. now it is $4 ago. they said i can't keep up with the price increases at the grocery store. and we discover health insurance premium, and it's going to be $300 a month more than what it was. and so all i will say, mr. chairman, is speed is the time of the gentlelady -- >> is there having to do with inflationary -- >> the time of the gentlelady has expire. the chair now recognizes the gentleman from texas, for five minutes. >> thank you, mr. chairman. chairman bernanke, thank you for coming to visit with the committee and thank you for your leadership, and for your

foresight in handling of our fiscal policy. your testimony comes at a pivotal time in our nations capital. while we want to address the long-term health of the federal balance sheet, the sequestered cuts are so drastic and so immediate that they greatly threaten economic growth. in your remarks you suggest congress consider a longer-term horizon for targeted fiscal changes, and i completely agree with you. the sequestered is wholly unnecessary and illustrates a lack of political courage i members of congress. we have spent a lot of time in this committee attempting to reduce uncertainty in the economy. we have done it by reducing uncertainty for banks, by finalizing rules. and we've done it by reducing uncertainty for small

businesses, by encouraging lending. uncertainty around -- affects of the sequestered is no doubt already chilling the economy, and confusion over the continuance of quantitative easing also creates uncertainty. for example, when word spread on wall street that the federal open market committee was considering ending or altering qe3, the dow jones dropped significantly. we cannot throw more uncertainty into such a fragile economy, and have consumer confidence erode. many of my friends across the aisle will argue that current fiscal policy is causing the economy to overheat. at the same time, all of us are concerned about still to high unemployment. how can a so-called overheating

economy see employment grow so slowly? and furthermore chairman bernanke, i'd like to ask you, do you think that our economy is indeed overheating? .. >> the monetary policies we've conducted have helped get

stronger recovery and more jobs than we otherwise would have had. there have been different studies that give different numbers, but most of them do find a pretty significant effect. on the fiscal side, um, as i mentioned, the cbo attributes to the sequester about six-tenths of a percentage point of growth in 2013 which they connect to the full-time equivalent of about 750,000 jobs. so from the cbo's perspective, there's an important job component or job effect rising from fiscal contraction which, again, as i've said many times, the federal reserve really can't overcome. we don't really have tool sufficiently powerful to overcome the impact of those types of fiscal actions. >> do you believe that the sequester kicking in on friday

would lead the markets to tumble >> well, the markets already know about sequester, it isn't news to them. so i don't think, no, necessarily that the markets will respond to the beginning of the sequester. but, again, i think a good policy, one that would be good for the economy and probably good for markets would be one that, again, takens a longer-term -- takes a longer-term perspective and takes steps to address our longer-term fiscal imbalances while phasing in some of the changes occurring at the present time. >> i ask that question because i spoke to a lot of teachers, a lot of people who have 401ks and saw what happened in 2008 when the markets tumbled about 40%, and they lost so much equity that they're concerned

that that might happen again. >> the time of the gentleman has expired. the chair now recognizes the gentleman from new mexico, mr. pearce, for five minutes. >> thank you, mr. chairman. thank you, mr. chairman, for being here and for your presentation today. i would like to echo what ms. cap toe said about the energy economy and my three counties in the southeast part of new mexico that $100,000 jobs driving a truck are going wanted. the occupy people say they haven't gotten a job, but they don't come out where there are jobs. we're trying to put them together with folks who are looking for workers. fourteen driving jobs in one company went without being filled, 3,000 jobs at another job fair went wanting, and the nation treats this like it's some sort of secondary effect. nationwide, i would point out that the bureau of labor statistics shows 3.6 million

jobs are available right now in america, and yet we've got a 7.5, whatever, percent unemployment. at some point i think the country needs to deal with that. i would also like to echo what ms. capito said about the seniors. her seniors seem to be a little more genteel than mine. i just had a town hall last night, and susan from my district also was quite energized about the whole content of quantitative easing, and i know the price of gas and the price of groceries don't rise to the level of where the fed would actually measure those in the computations, but when we were told that the price, that inflation is not going up at all, it's eating the lunch of our seniors who can't afford to fill their fuel tanks and buy groceries. and i would invite you to come

and sit with me at an open town hall in new mexico. would you be open to that? we could contact your scheduler maybe. >> you could talk to the scheduler, if it's possible. >> i would take that as a positive sign that you would be interested in talking to people at that end of the economic ladder, because they don't buy quantitative easing as this great miracle that i'm hearing today. they understand the creation of money out of thin air depreciates what they have, and it always, inflation hurts the poor worse than anyone else, and that is our district. and so susan asked would you put all your money -- just so you get the full benefit of zero interest rate -- why don't you put all of your money in savings accounts. because many of these people are unsophisticated investors like chairman garrett suggested. they're not comfortable. they don't know all these risky

things. they see wall street and all these derivatives that got everybody hyped up and cost us several trillion to pay back those people who took those risks. but they don't buy it. and they're furious with the government. they say we lived our life right. we paid off our homes, we put money into the bank, we had a nest egg that was sufficient at the going rate of interest and now our government is bragging that we have zero interest, and or we are being punished after living our lives correctly. my mom was in that category, she's 80 something. i hope she doesn't go out and start finding a stock investor right now. so i think at some point it would be nice for you to get out among people that have manure on the bottom of their boots like we do in new mexico. you were, you spend a lot of time on page 7 quoting the cbo

about the effects of the sequester. you even talked about it, but i was unsure if you agree with the cbo or if you simply are quoting the cbo. are you in full agreement with the effects that you have put into your paper? >> broadly speaking, yes. >> fairly speaking, i'm wondering -- you also say there were temporary interruptions to the economy, the weather-related swruptions to the economy, that's page one of your testimony. i'm seeing that the walmart and the financial times at wal-mart and all the other retailers are worrying about the price increase, the payroll tax increase that was passed along at the end of last year as being maybe as big an effect. the cost is about the same, 95 billion more or less, and yet i don't find any reference, i don't find a reference to the penalizing effect that that tax increase -- >> well, that's part of the overall -- i did mention that the overall effect of all the changes is about one-and-a-half

percentage points -- >> you do mention the sequester. you used a little bit different language. you don't actually count and say the sequester, but you do our solutions are going to raise big headwinds. i find to mission very curious. >> i did mention that. >> the time of the gentleman has expired. the chair now recognizes the gentleman from north carolina, mr. watt, for five minutes. >> thank you, mr. chairman. and thank mr. bernanke forking forking -- for being here. i apologize for being late, i was over in the supreme court on the voting rights case listening to the arguments. and sometimes it's kind of difficult to be in two places at one time. i've found. i'm want to go back to the prior questioner because my constituents, obviously, living

in a slightly different world than his and getting ready to live, apparently, in a more significantly different world than his unless we do something between now and friday. we spent a lot of time in yesterday's hearing talking about the impact of sequestration, and it is really vexing a lot of people although i confess that most people don't know what a sequester is. you say at the the top of page 7 that monetary policy's working to promote a more robust recovery, but it can't carry the entire burden of insuring a

speedier return to economic health. the economy's performance both in the near term and in the longer run will depend importantly on the course of fiscal policy. that's something that's under the congress' control. as opposed to monetary policy which is under the fed's control. um, and you make some observations about the short and long-term impact. i'm wondering if you have some views about the impact, the likely impact notwithstanding the monetary policies that the fed has implemented of sequesterrer in the form -- sequester in the form that it is about to take effect if we don't do anything between now and friday? >> so i haven't made any comment

about the specific allocation of cuts across different departments. i think those are issues for the congress to debate. what i did was cite the cbo numbers which, again, i think are reasonable which suggests that all of the fiscal measures including the payroll tax increase are equal to about one and a half percentage points of drag this year and that the sequester by itself is about six-tenths of drag according to the cbo and according to, i think, most standard analyses. >> and you said you generally agree with the cbo's analysis of -- >> yes. >> yes. all right. and, um, so you're saying that sequestration could have six-tenths or six-tenths of one percentage impact on -- >> on the growth rate. >> on -- >> brings the growth rate --

>> on the growth rate, okay. so, and what -- in this kind of economy that is fragile, what would you project would be the consequences of that? >> well, the, um, the cbo suggests that the job impact in full-time e equivalence will be about 750,000 -- >> so that's 750,000 more people unemployed than would otherwise -- >> would otherwise be the case. >> okay. >> or an unemployment rate that might stay where it is or go up a little rath or than coming down by the end of the or year. >> and what about the uncertainty associated from a business and economic perspective? what would you project there? >> well, it's hard to measure the uncertainty effects, but there's been a whole sequence of

events going back to the 2011 debt ceiling debate. now we've had the fiscal cliff and sequester, all these things. and what we hear at least anecdotally from people around the country is it does create uncertainty and makes it more difficult for them to plan, to hire, to invest. >> more difficult for them to hire and invest. i wanted to reemphasize that. so, um, you think -- >> time of the gentleman has expired. >> i yield back. >> the chair now recognizes the gentleman from pennsylvania, mr. fitzpatrick, for five minutes. >> thank you, mr. chairman. mr. bernanke, thank you for your time and your insight here and your service to the people. when you were here mid last year, the bureau of labor statistics indicated that the unemployment rate was higher than it is today. today i think they're saying it's about 7.9%, although most people throughout the country believe it's much higher, people

in pennsylvania that i represent -- especially among younger workers especially, recent graduates just graduating from high school trying to get into the market. i spoke earlier today on the other side of the city to the american legion about returning increasing number of returning veterans from afghanistan, and some believe that the unemployment rate among veterans is twice the national average. and, of course, all this is unacceptable. so from 2001 to present, our country has had a significant increase in population. we have increasing numbers of veterans coming home looking for work in a very difficult economy. some are suggesting because there are fewer people working today than were working can be employed today than were working in 2001 that our country may have just experienced a lost decade. similar to what japan went through in the 1990s and the 2000s. do you agree with that? are there any differences between what happened in japan

and what's happening here in our country, and if so, what policy suggestions would you make to address it? >> well, it's obviously been a very severe, difficult economic period. i don't know about calling it a lost decade. there are important differences between the united states and japan. japan has even a more rapidly aging society than we do. their work force is actually declining. they've had more adultties with their banking sector, we were more rapid at getting our banks up and running again, so to speak. and very importantly, the federal reserve has kept inflation close to 2%, and we have avoided deflation which was a major problem for the japanese. in terms of what to do about it, first of all, there are many things that could be done to address our long run economic prosperity in terms of good tax policy, good decisions about encouraging public and private

infrastructure, things that i mentioned at the end of my testimony. in the short term, it's our view that there's still a good bit of slack in the economy that we're not using all the resources we have. as you mentioned, we have very high unemployment this certain categories, and that's the basis for both the accommodative monetary policy we have, keeping interest rates low and trying to stimulate housing and durable goods and so on, and also for the recommendation that fiscal policy go gradually as congress tries to address the long-term deficit issues. >> the fed has indicated that it believes the long-term unemployment rates will settle at around 5.2 or 6%? >> that's our best guess. >> and understanding, and i heard your testimony earlier about predicting the future, but when would you say we might get to around 6%? and also, you know, the american people believe natural unemployment is actually much lower than that given what we experienced in the 19990s and maybe your suggestion to how you

address that expectation. >> um, again, it's hard to predict, but a reasonable guess for 6% would be around 2016, about three more years. >> in my remaining time, i just want to address the issue of the fed's bond-buying program. you said in your testimony last september the fomc announced it would purchase agency-backed securities, fomc has indicated it are continue purchases until it observes a substantial improvement in the outlook for the labor market and a context of price stability. first of all, what would be the target improvement for the slowdown? >> we haven't given a specific number. we're looking for improvements in terms of employment, in terms of unemployment, in terms of a stronger economy that can deliver more jobs. the reason we haven't given a specific number besides all the uncertainty that's involved is because we're also looking at

the efficacy and cost as i've described in my testimony. if they're -- all else equal, if there are costs being generated by that policy that are concerning, that would, all else e cool with, make us do less. if it's more efficacious, we might do more. >> and in my remaining 20 seconds, can you give us what a proposed strategy would be for the acquired positions that the fed has right now? >> for the what? >> sales strategy? >> the assets? >> for the assets, right. >> um, we've been clear that at the time that we decided to begin sales that we would give plenty of notice and proceed slowly and do so in a way consistent with our macro objectives. >> time of the gentleman has expired. chair now recognizes the gentleman from connecticut, mr. hines, for five minutes. >> let me add my voice to those who have complimented you and thanked you for our efforts over

the years to restore our economy to vitality. i suspect when the history books are written, we will look at the twin engines of monetary and fiscal policy in this country, and you will emerge as somebody who acted wisely and in good faith, and those of us charged with fiscal policy certainly in the last two years will be regarded as at best having deatherred and at worse having -- dithered and at worst having acted counterproductively. and i appreciate throughout your testimony as well as throughout this report you warn us of the dangers of premature, sizable fiscal contraction, something which i've heard from the other side of the aisle over the course of the last two years is regarded by them as essential to our recovery. we have a theoretical discussion about that around keynesianism and this and that. i do want to ask you a question, though, in this report on monetary policy. you talk about the euro area and, and the report reads: the

euro area fell further into recession as fiscal austerity and other things led to a reduction in spending. to take this discussion out of the theoretical, any number of countries in the euro area -- ireland, the u.k., italy, spain -- pursued fiscal policies significantly more contractionary than our own. and i wonder add you contemplate the euro area, and here we're looking for a policy response, is there any country in the euro area that pursued more aggressively contractionary fiscal policies than our own that has seen economic expansion, job creation and meaningful reduction in debt to gdp? >> i don't think so. >> so there's really no country that has pursued the kind of austerity policies that we've heard some in this institution call for that have experienced economic growth or a reduction in the debt to their economy? >> i think germany's had the best experience, but even there they've had a shrinking economy

recently. >> thank you. i appreciate that answer. to change topics here, i was very interested in the exchange that you had in the senate, i believe, yesterday on the topic of dodd-frank. senator crapo, i think, asked you to reflect on what elements of that legislation you thought were good and perhaps which elements could stand improvement or that this institution should perhaps revisit, and i think you highlighted, you specifically highlighted section 716 as an area that you thought perhaps we could revisit. i wonder, could you elaborate a little on 716? but also i'd love to have you extend that discussion just based on what you've done the last couple years. what other areas do you think, perhaps, we may have gotten wrong or perhaps, you know, are experiencing unintended consequences or have created problems for the regulators in terms of implementation? >> well, 716 requires the pushout of certain kinds of derivatives which means that banks can't manage those derivatives, they have to be in

a separate, separate company, separate affiliate. um, and it's not evident why that makes the company as a whole safer. what we do see is that it will likely increase costs of people who use the derivatives and make it more difficult for the bank to compete with foreign competitors who can provide a more complete set of services. so there are some concerns about that particular rule. i think more generally though we want to ask the question can we achieve the same objectives more efficiently are, more cheaply, and a review of some of the different elements would be, i think, useful. and a number of people have mentioned concerns about community banks and small institutions, and i think an inventory, a broad inventory of the regulations affecting small banks would be worth doing in order to try to assess whether

they're places where we can simplify, reduce the burden for those banks. >> uh-huh. thanks. that's helpful of. would you be willing to comment in this context dodd-frank and its subsequent regulatory implementation how you think about the extent to which the broaderrer too big to fail problem has been addressed, and are there areas where you think we could do better or differently? >> well dodd-frank has a pretty comprehensive strategy for addressing too big to fail. i think it's too early to say. i think we've made some progress, but it's too early to make a defellowshiptive conclusion because many of the relevant regulations are not even in effect yet. but again, i think there is a strategy here, and i think we ought to continue to pursue it and see how it shakes out. if it doesn't achieve the objective of eliminating too big to fail, i think we ought to come back and decide or ask congress where they might take

additional steps. >> thank you, mr. chairman. >> the time of the gentleman has expired. as a process point, the chairman will be the bearer of bad news to some members on our current schedule the respect the chairman's schedule, it is likely that mr. like meyer, carney, high sink disa and -- [inaudible] will likely be the last members to ask questions. at this point the chair will recognize mr. like meyer of missouri for five minutes. >> thank you. thank you, mr. chairman, thank you, mr. bernanke, for being here and enduring three hours of this again. you know, i've got some concerns with regards to the way we're going with quantitative easing from the standpoint that even in your own report here you talk about japan, you talk about england, you talk about china. all three have used quantitative easing, and yet all three of them have, even in your own document here, their growth has continued to go the wrong

direction. and i, i'm curious about that. even in "the wall street journal" yesterday it says that china now has its own debt bomb. and one of the statements that it made in there is that through 2007 creating a dollar of economic growth in china required just over a dollar of debt. since then it's now taken $3 of debt to generate a dollar worth of growth. this is what you normally see in the late stages of a credit binge. and so i guess my question is while we're heading down the same path as these other countries, and you -- my neighbor here, my friend to the left a while ago mentioned about japan and their 20 years of trying this quantitative easing, and now they've got a stagnant economy, weak industries, little growth, and yet they have 200% of debt to gdp. we're headed down that same road, and obviously even your own documentation shows it's questionable whether it even works. what would be your response?

>> well, i think the evidence for the united states is that while it's not incredibly powerful, it does work. we have seen recovery that's not fast as we would like but is, never the less, meaningful and stronger than any other industrial countries. one way of interpreting japan is that they, on the monetary side, is that they were too cautious in that one of the most salient facts about japan is they've had deflation,ing falling prices for quite a few years, and that's suggestive of monetary policy which is not achieving price stability. and as you know, the new prime minister and new governor of bank of japan are promising more aggressive policies to try to eliminate deflation. so you could look at that either way. um, it is a problem for us that we have our normal short-term interest rate policies are no longer available because short rates are close to zero, and so we've had to go to different

mets as -- methods as i described, but again, our best estimates suggest that it has had a meaningful, beneficial effect. and i've tried to be completely frank with this committee and talk about the downside as well. i'd like you to understand the kind of cost benefit analysis that we're doing. >> well, i have some concerns from the standpoint i don't know that we're doing things differently than other countries here but, hopefully, you feel that we do. the other thing you mentioned the exit strategy, and i understood what you were saying a while ago when you were talking about there were different ways of going about it. has any other country ever done this? had this large increase in the central bank's portfolio and then unw0u7bd it so that we know -- unwound it so that we know this was a tested strategy that would work? >> well, not in a precisely analogous way because japan, after all, which is really the only other country prior to the crisis which had used quantitative easing is still in that situation. but the tools we're using or

supposed to use such as the interest on reserves, for example, or the draining of reserve tools that we have, those have been used quite frequently by other central banks, and they seem to work in their context. >> okay. one more quick question here, and it's with regards to a statement you made in your -- or comment that you made in your opening statement. it says in any case, the federal reserve is responding accurately throughout substantially expanded monitoring of emerging risks in the financial system that takes a more systemic perspective in the ongoing implementation of reforms to make the financial system more transparent and resilient. can you give me some examples of some things that you're doing with regards to systemic supervision, 'em -- implementation of reforms? give me some examples? >> sure. on the monitoring, we've greatly increased resources, both the fed and the oversight council are doing that. in terms of macro potential

oversight, one good example is the stress testing that we now do where we ask the largest banks to figure out what would happen to their capital if there was a very severe downturn in the economy. and a very big decline in financial -- >> let me interrupt for one second. i'm running out of time here. can you give me examples of reforms to make the system more transparent and resis tent? >> well, the baas sell rules, for example, our stress tests. we publish the results so that the markets know what the results are for each individualback. >> thank you very much. my time has expired. >> time of the gentleman has, indeed, expired. the chair now recognizes the gentleman from delaware, mr. carney, for five minutes. >> thank you, mr. bear bernanker coming in today and really for your great leadership on monotire a policy for our -- monetary policy for our country. i think you're the right person at the right time and you've given us, frankly, great advice.

we haven't really followed it with respect to smart fiscal policy. you've consistently said that we need to be careful in the short term, do no harm in the short term, if i may, and address our long-term imimanses, fiscal imbalances in the outyears. and in your testimony you say specifically the federal deficit and debt as a percentage of gdp will begin rising again in the latter part of this decade reflecting in large part the aging of the population and fast-rising health care costs. do you believe as i do that hack costs are the primary driver of our outyear deficits? >> they are, yes. >> so from our perspective we've got medicare, medicaid, federal employees, military health care. what should be our goal? have you thought much about this as it relates to what the country needs to do with these fiscal challenges? >> well, as you know, health care's a very complicated subject, and nobody has a single

answer. i think one way of describing our problem is we have fee-for-service and third-party pay together which means that doctors can order as many tests as they want, and the patient doesn't care because they know somebody else will pay for it. there are many different ways to address that. one way is to have of the consumer bear some of the financial cost, another way is to have tighter controls from the government who's paying the cost. um, so there are many different approaches. certainly, we want to be rewarding doctors and hospitals for quality, we want to have more transparency about their processes. >> how about health care as a sector? i mean, should we be looking at -- i mean, we have these debates in my state of delaware all the time about somebody's building -- they're expanding and building a new hospital right down the street from where i live. we talk about it a lot as economic development. i think you could ls also see it as, frankly, an increase in overhead. those costs are going to be borne by somebody, and they are

either employers or the government, it seems to me. how would an economist look at that in terms of the health care sector writ large and health care employment? >> well, that's exactly right. we have to, we have scarce resources, we don't have infinite amounts of money to spend on health care. we want to deploy it in ways that have the greatest benefit for the least cost. >> right. >> and there are different ways to go about doing that. but clearly getting the per capita costs of health care under control would not only be very good for the federal budget, but it would be a terrific thing for our economy more broadly because, of course, individuals and companies also pay health care costs. >> so you may not want to comment on this, but one of the specific ideas that people have floated is to increase the age for medicare eligibility which doesn't do anything for the cost of the people who have that, it just shifts, as i see it, it shifts that cost from the government, frankly, or from that system to the private sector or private payers.

do you have any thoughts on that generally? >> well, it relates to what i just said which is it's not just a federal fiscal problem, it's an economy-wide problem. so the real, lasting solutions will involve changing the way we pay doctors and hospitals so that they will have the incentives to keep costs under control whether it's the government paying it or whether it's a private success to have person paying it. >> thank you. one last question. you mentioned earlier when we were talking about too big to fail with representative capuano that you no longer under dodd-frank have the tools that were available to you in 2008. do you need additional tools? there's been a lot of discussion among people that i've talked to about in addition maybe to orderly liquidation authority which i guess a district judge would order having some sort of enhanced financial bankruptcy that might be an option as well. do you have any thoughts on additional tools? >> no. we're not asking for any

additional tools at this juncture. we continue to work on the orderly liquidation authority with the fdic, and at some point it would be a good idea for congress to review that process and see if you're comfortable with the approach that the fd,ic in particular has suggested in dealing with a failing firm. >> thank you, chairman bernanke. i yield back. >> chair now recognizes the gentleman from michigan for five minutes. >> thank you, mr. chairman. i appreciate that. mr. chairman, appreciate you being here as well. i'm going to try and move quick and express some opinions but also have a couple of questions, and i, too, want to sort of log my caution on what we have been doing with our monetary policy in the easing that we've had. there's been lots of discussion about this economy being very fragile, i've heard a number of my friends and colleagues over there and why we, quote-unquote, can't allow the across-the-board cuts to go in place. but it seems to me no one's

really commenting on the tax increases proposed by the white house or the increased regulation that we are seeing whether it's through the epa, certainly through dodd-frank that this committee is dealing with, etc., etc. as one of my business owners back home put it to me, he said, look, it's not like this one little piece, this one brain of sand is going to -- one grain of sand is going to stop the machine. but when you start adding 10 or 20 or 30 or 40 or 50 and start pounding it in with a mallet, suddenly it wreaks it down, and -- breaks it down, and i think that's exactly what we've seen with much of the regulation. but, you know, in addition to that we haven't even talked about the hit from the, from the tax rate lapses, you know, the so-called bush/obama tax rates that were there. and i'd like to see my friends have a greater conversation about that. i mean, at the time ernest and

young put out a study letting tax rates for the wealthiest americans lapse would cost about 700,000 jobs, exact same numbers, basically. and i'm not trying to compare apples and oranges. i think as one wise person said we might be talking about red apples versus green apples here. but, you know, we've got to look at that side of the equation as we're moving forward. the long term, i want to talk a little bit about that, and i've got a specific question. on page 5 to quote your report today, however, the committee remains -- committee, you all being -- remains confident that it has the tools in's to tighten monetary policy when the time comes to do so. and i know you've laid out 2015, 2016, that time frame. what exactly tools do you believe that you are going to employ to put that restraint back in place? >> well, we earlier discussed the exit sequence. so, first, we can simply allow securities on our balance sheet to run off and not replace them as we currently are doing.

secondly, we have a number of tools that can be used to drain reserves from the system such as reverse repos. thirdly, we can raise interest rates even without reducing our balance sheet by raising the interest rate we pay on excess reserves which which will in turn transfer in money markets. and fourth and finally, and it's not the first resort, but eventually, we can sell the securities back into the market in a slow, predictable way. >> this has not been done, though, i think as we've talked about with japan and others, correct? i mean, this is the theory of how we're going to do this. >> there's, each of the elements is something that we have tested, that we've seen other countries use. so we think we understand it pretty well. >> so the thing i did appreciate you laid out three things that you wanted to have brought to light today, and interest rates won't be this low forever was something, i think, we were not living with the reality of or the recognition of that.

um, i'm curious because you talk about and i'm afraid that the headlines tomorrow are going to be bernanke blasts across-the-board cuts or bernanke calls for a stoppage of the across-the-board cuts when i, frankly, based on what i've heard the testimony today, i hi the headlines ought to be that bernanke calls for long-term reforms. and there's just a denial in this town and so many, in so many ways about what's happening down the future. and what would you say to those who say we can't or shouldn't reform these long-term programs? >> i don't think we have any choice. i think i've tried throughout this discussion to always have two parts to the recommendation. >> you're a good economist. on the other hand. [laughter] >> i've got a third hand here too. >> yeah. >> anyway, with the idea being

that we want to reduce somewhat the fiscal drag in 2013, and i didn't, you know, i'm not speaking only about the sequester. i talked about all the fiscal actions which collectively are are about one and a half percentage points according to the cbo, but i'm not here to recommend that we just kick the can indefinitely down the road. i think it's very important -- >> we've got about ten seconds. so this is medicare, medicaid, social security reform? >> the specifics are up to congress. but, obviously -- >> well, those are our long-term drivers of that. so there you go, folks. the headline for tomorrow is bernanke calls for long-term fixes. >> time of the gentleman has expired. the chair now recognizes the gentleman from michigan for five minutes. >> thank you, mr. chairman. and in respect for the time that chairman bernanke has provided us, i'll ask one, i think, very important question and then in allowable yield the remainder of my time to my colleague to ask a question. before i came to congress as i

mentioned to you, i was in local government. i was the county treasurer of the county in michigans which is home to flint, michigan. we've seen a significant number of downgrades to municipal debt which by itself is an issue that i'm interest inside your thinking on but i think also represent as symptom of a much larger problem x that is municipal insolvency generally. we've seen vallejo, california, harrisburg, pennsylvania, camden, new jersey, my own hometown of flint, and now we see detroit facing this insolvency. the state--based solutions to these problems typically have been replacing existing management with different management that can presumably make different decisions that result in outcomes that are more favorable. i think what we're facing in my

opinion, in my work across the country, is something much bigger than a failure of management, but a structural failure. and what i think is potentially another institutional failure in the urban setting, in municipal governments. i'm breasted in your thoughts -- i'm interested in your thoughts about the implications for that trend if you agree that it is taking place on our economy, what solutions the federal government might consider, if any, to deal with that. and then a corollary to that. to the extent that the sequester will disproportionately affect the most vulnerable of our citizens, isn't it also logical to assume that the sequester cuts might exacerbate chat already a growing -- what is already a growing problem and make this a problem even more difficult to manage? >> well, the last few years have been a touch time for state and local governments. not only are sales taxes down but so are property taxes as

property values have come down as well. as a result, state and local governments have cut work forces, have cut spending, have cut capital prompts, some have been able to, you know, steady the ship, others are still under a lot of stress. obviously, in the short term trying to promote job creation as the fed is trying to do and as i'm canning the congress to think about in their decisions is going to help a lot of these areas by creating more economic activity and more tax revenues. there are, obviously, some parking lots of the country where there are longer-term, more structural problems that are not just business cycle problems. and some of those may be in your state. um, there, you know, i don't really have a solution. the federal government has not in the past involved itself that much with those distressed municipalities. >> i guess if i can just quickly

follow up on that. the federal government hasn't involved itself in a lot of things until the necessity appeared. i'm concerned about the state governments may not have the capacity, and the cities failing will be a national problem one way or another, and i suggest at a different juncture we might pursue some thought about how the federal government might intervene in that case. and i would yield the remainder of my time to mr. ellison. >> thank you, mr. kelly, very grateful. chairman bernanke, i don't have much time, so i'm going to ask you real straight, sheila bair had an article in today's new york times focusing on income inequality. my question to you, does ip equality matter in terms of the efficiency and functioning and growth of our economy? >> well, it's very important in its own right. we want to have, everybody have opportunities. we want a fair society. um, i think it does if people don't have, if talented people

don't have the ability to move up and to get a good education and to move into the middle class, that's a loss for everyone not just for those individuals. so i think a society in which there's greater equality of opportunity will be a more productive and efficient society as well. >> but like on the macro level in i mean, those points you made, i think, are absolutely right. but, you know -- >> yeah. >> 70% of our economy is consumer spending. if folks on the bottom don't have any money. >> yeah, but in the longer term what matters is our human capacity, and there human talent and skills is the most important thing. in this country we had a period where we brought women into the labor force, and that brought a whole new set of skills and talents into our economy. >> the time of the gentleman has expired. just under the wire. the last word will go to the gentleman from wisconsin, mr. duffy, he's recognized for five minutes. >> thank you, mr. chairman, and good amp, mr. chairman.

yesterday in the senate hearing you had a conversation about some of your concerns about dodd-frank. you didn't have much time to answer that question. would you mind sending me in writing a concern about the details of dodd 46 frank? >> sure. but we don't have a long list of specifics. i do think it would be a good thing for congress to review. >> if you wouldn't mind, two weeks? two or three weeks? >> as soon as we can. >> you have a big team. quickly, i want to talk about the -- >> could you turn on your microphone, sir? >> roughly we spend about $25 million to service our debt, is that right? roughly? >> sounds about right. >> okay. and for the cbo for every additional point that our interest rates go up it costs us an additional $100 billion a year to service the debt, does that sound right? >> yes. >> so if you stop with your accommodative monetary policy, we could see interest rates rise 2, 3%, right? so we'd have an additional

$200-$303 billion of additional dollars going to service our current debt, fair to say? >> that's right. cbo takes this into account in their projections. >> for me i say, listen, this is half a trillion a year to service our current debt, $5 trillion over ten years. i see the lights going off, the sirens are preparing, and i'm also setting that proverbial can on my counter, and you're kicking it saying, listen, don't worry about $85 billion in cuts, do it a different way. listen, i think you're giving cover to a set of policies that aren't responsible. and we're all going to pay the price. for the fiscal irresponsibility. and instead of encouraging responsibility, you come in and say, listen, to cut 2% of our budget, you can't do it. it's going to have a great impact on our economy. that, mr. chairman, that doesn't make sense to me. >> well, i think most economists, including the cbo, will say this are cost a lot of

jobs in the short run, and you can address, you can achieve the same results with longer-term programs. >> and so on that point how many jobs are lost if we cut the $27 million that go to moroccan pottery classes or the 2.2 billion in free cell phones? we pay $700 billion to see how long shrimp can run on a tread mill. i believe we pay for the travel expenses for the watermelon queen in alabama. there is fat in the budget, and i think every american looks at how we spend our money, and they go i can cut 2% out of my family budget, small businesses can cut 2% out of my budget, but you come in and tell us, listen, i agree with the president, it is catastrophic. it's catastrophic if you cut 2%. mass mayhem in our economy. i find that to be unbelievablement. >> well, the sequester is not designed to cut wasteful stuff. it's across the board. >> so then are you here tells us that if we cut $85 billion in a

more reflective way in the bad spending that i just referenced, you would support it? it's a good idea if we're not doing it by way of the sequester -- >> it would be better. it would be better. >> so is it better or you would agree with us that we should actually reduce spending? >>? >> i'm the still concerns about the short run impact on jobs. if you slow the economy, that hurts your revenues, and that means your deficit reduction is not as big as you think it is. >> so the revenues that we get from the moroccan pottery classes and the $2.2 billion in free cell phones and the list goes on, mr. chairman, that that is a great driver of economic growth in our country? is that your position? >> most of the spending goes to the military and to, um, transfer programs like social security and medicare. >> and there's a lot of fat. and you can find 2% of fat that doesn't effect our military -- >> i also said in my testimony that not all spending and taxes

are the same. i i very much advocate trying to make good decisions about how you tax and how you spend. >> so you agree there's fat and that you would encourage us to cut the fat because if you current interjecting your policy, this would be a half a trillion expense to the american government, almost what we spend on our government. on our military. >> i think it's, obviously, a good idea to improve our fiscal budgeting and make better decisions, certainly. >> i know you like to say you stick to monetary policy, but you do come in here and talk about fiscal policy all the time. and if you don't like our approach to trying to reduce how much we spend and you want to kick the can down the road, and i don't have much time, 15 seconds, if you wouldn't mind submitting your plan for a long-term fiscal approach, i would appreciate that. whenever we try to cut spending, you say don't cut spending today, no, no, no, cut it tomorrow. if you have a better plan on a long-term approach, if you'd submit that in writing, too, i'd

appreciate that, mr. chairman. thank you. yield back. >> time of the gentleman has expired. i'd like to thank chairman bernanke for his testimony today. all members will have five legislative days in which to submit additional written questions to the chair which will be forwarded to our witness. we would ask you, chairman, to please respond as promptly as you are actually. without objection, all members will have five legislative days with which to submit extraneous material toss the chair for inclusion in the record. without objection, the chairing is adjourn -- the hearing is adjourned. >> today a briefing with republican members of the house armed services committee. they're speaking to reporters on efforts to avoid the automatic spending cuts known as sequestration. we'll be live from that briefing 10:30 a.m. eastern on c-span. this month, most federal payments including social security will be made electronically.

today, a look at how electronic payments may with replacing the use of cash. the center for american progress is hosting a forum titled the end of cash with the deputy assistant secretary for consumer policy. live coverage starting at 12 p.m. eastern here on c-span2. ♪ ♪ >> today a new moon is in the sky, a 23-inch mettle sphere placed in orbit by a russian rocket. you are hearing the actual signals transmitted by the satellite, one of the great scientific feats of the age. >> so there was a very rapid galvanization or mobilization of resources in the united states to catch up. we could have put the first satellite up, but we weren't in a rush until the soviets did it. and thereafter for the next few years there was a real race going on with the united states

attempting to put a man in space. the russians did it first. then to put two people in space, the russians did it first. the russians put a woman in space first. they had a succession of missions in the early 1960s, and it took about five years before the united states caught up to the feats that the soviet union was performing in space and began to take the lead. and the ultimate goal of the race was to go to the moon. >> from the dawn of the space age through the space shuttle discovery, from smithsonian's national air and space museum sunday at 7 p.m. eastern part of more than history tv this weekend on c-span3. >> now, legal scholars argue that the judiciary and the congress should be involved in executive branch decisions when targeting terror suspects overseas who are u.s. citizens. the house judiciary committee

hearing comes in the wake of a leakedded justice department document on targeted killings. this is two hours, 20 minutes. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> good morning. the judiciary committee will come to order. without objection, the chair is authorized to declare recesses of the committee at any time, and we welcome everyone to today's hearing on drones and the war on terror. when can the u.s. target alleged american terrorists overseas. i'll recognize myself first for an opening statement. on february 4, 2013, a confidential justice department white paper outlining the legal justification for targeted killings of u.s. citizens overseas was leaked to nbc news. the leak of this white paper brought renewed attention to anish hue largely ignoreed during president obama's ten your. is the targeted killing of

alleged american terrorists appropriate and under what circumstances? the white paper also confirms a palpable shift in war on terror policy by this president. in 2007 barack obama, the then-junior senator from illinois, laid out his position in the war on terror. quote: to build a better, freer world we must first reflect in ways that reflect the decency of the american people. this means ending the practices of shipping away prisoners in the dead of night to be tortured in far-off countries, of detaining thousands without charge or trial, of maintaining a network of secret prisons to jail people beyond the reach of the law. the same president who opposes the detention of foreign terrorists, who opposes the use of enhanced interrogation techniques on foreign terrorists and who attempted to bring foreign terrorists to trial in new york city is now personally approving the killing of americans. ironically, the detention

facility in guantanamo remains open and khalid sheikh mohammed and his co-conspirators are being tried before a military commission. following the release of the white paper, a bipartisan group of committee members requested the opportunity to review the them memos that form the basis of the white paper. our request was denied. one of president obama's first acts as president was to release the bush justice department's enhanced interrogation techniques memos to the public, but he now refuses to provide his justice department's targeted killing memos not just to the public, but even congressional overseers. we also invited the justice department to testify of today. that request was denied too. according to at least one estimate, drone strikes against suspected al-qaeda terror u.s.es have increased sixfold under the obama administration. anywhere from 2500 to 4000 people have been killed by these strikes. what's more, this administration is not just targeting foreign

fighters, but american citizens as well. president obama ordered the killing of anwar al-awlaki, the american-born al-qaeda cleric. in september of last year forces killed al-awlaki and his 16-year-old son in a drone strike in yemen. america now knows the criteria used to nominate an american for targeted killing. the white paper sets forth a legal framework for when the u.s. government can use lethal force against a u.s. citizen who is a senior operation alleyeder of al-qaeda or an associated force, and is located in a foreign country outside the area of active hostilities. the justice department claims that in such a case lethal force would be lawful where three conditions are met. an informed high-level official of the u.s. government has determined that the targeted individual poses an imminent threat of violent attack against the united states. two, capture is infeasible, and the united states continues to monitor whether capture becomes

feasible. three, the operation would be conduct inside a manner consistent with principles of the laws of war. today's hearing will examine the justice department's white paper and the constitutional issues surrounding the targeted killing of more thans overseas. of americans overseas. we have an impressive panel of experts to help the committee analyze these important issues. let me ask members of the staff to locate where that construction work is going on and ask them to allow us to conduct a hearing without the pain of drilling. the targeted killing of americans overseas has ignited a debate about the breadth of a president's commanderrer in chief authority and the standard that should apply when targeting americans. is the white paper a fair reading of the law? under what circumstances can the president decide to kill an american citizen? is there any due process of law that must be granted before the

commander in chief can kill an american in does the administration's approach comport with the law? should the president be able to decide unilaterally to kill americans? the american people deserve to know and understand the legal basis under which the obama administration believes it can kill u.s. citizens and under what circumstances. obviously, were the justice department memos made available or the justice department here the testify today, members of the committee could have a fuller understanding of the administration's legal rationale. however, today's hearing will provide an official public debate of the issues. and now it's my pleasure to recognize the ranking member of the committee, the gentleman from michigan, mr. conyers, for his opening statement. >> thank you, chairman goodlatte, and members of the committee and our distinguished witnesses present, we are here

examining a pressing matter, namely the use of unmanned aerial vehicles, drones, to strike at suspected terrorists abroad. first, let's make clear the house judiciary's jurisdiction over the matter. these are serious constitutional considerations involved, and that's what this committee has been created for. as well as civil rights questions which are also involved in this operation. our committee has direct oversight of the department of justice which has issued legal opinions, although classified, that purport to establish the

legal basis for the use of lethal force against or terror suspects. now, in the course of this issue that has been raised, numerous letters have been sent, and i want to point out that our latest one that was joined in with myself, chairman goodlatte, former chairman jim seven seven wrenner, jerry nadler and bobby scott who wrote again to the president to renew our request for all legal opinions related to drone programs. i am pleased that we've reached a clear pi partisan consensus --

bipartisan con consensus on this issue. this committee requires those documents to fulfill its oversight responsibility. this isn't a witch hunt. this is an inquiry. and we're all cleared for top secret. and we'll work together to convince the administration to satisfy our requests. let's examine a couple issues here. targeted strikes against united states citizens, targeted strikes generally and, three, the odious so-called signature strikes.

now, the need for oversight is clear. i'm not convinced and the title of the hearing before us suggests by the administration's legal rationale for the targeted killing of any united states citizen overseas. the white paper describes a balancing test for the fourth amendment on lawful seizure of a person or a life, the fifth amendment -- due process which tilted so far in favor of government enters that a potential target appears to have little chance at meaningful due

process when he is nominated without his consent, of course, to the so-called kill list. i also remain unconvinced about the targeted killing of terror suspects who are noncitizens. although the administration appears to rest its claim of authority on the authorization for use of military force passed by the congress in 2001, it is not clear that congress intended to sanction legal force against a loosely-defined enemy in an indefinite conflict with no borders or discernible b end date. and i'm considerably troubled by the widely-reported use of

so-called signature strikes where suspects need only display suspicious activity, but their identities are unknown prior to the government's use of lethal force against them. that may be a cia activity that should be sent over to the defense department, by the way. to date, and i rush to a conclusion, we want to accomplish the following: we need to know more, and i hope that the way that we conduct this hearing individually among our members of the committee

will convince the administration that this is not a personal nor political. that all we are seeking is information to which we're dually entitled -- duly entitled, and we have one committee on intelligence that have gotten two reports out of a dozen or more? that's, that is, that is not acceptable, and with all due respect to an administration that i support, we are creating a resentment on a visceral level as general stanley mcchrystal has echoed on a level that we can't even begin to imagine.

mcchrystal was the architect of counterinsurgency in afghanistan, and the resentment created by the american use of unmanned strikes is much greater than the average american appreciates. well, i think we appreciate it, and i think that we want to have this become the first of a number of hearings. i conclude by saying i don't think that the attorney general of the united states can decline to come before this committee on a subject that is so clearly within our jurisdiction, mr. chairman. and i yield back my time. >> i thank the gentleman for that expression of concern. i share it, and i will work with him and the other members on his side of the aisle as well as the other members on our side of the

aisle to see what we can do to bring about better cooperation, because we are seeking information that this committee is entitled to have. we have a very distinguished panel. without objection, all the members' opening statements will be made a part of the record, and we'll turn now to our panel. of we have a very distinguished panel joining us today, and i will begin by introducing the witnesses. our first witness is mr. john bellinger, a partner at arnold and porter, a law firm here in washington, d.c. where he advices u.s. and foreign companies on a variety of international law and u.s. national security law issues. mr. bellinger is also an adjunct senior fellow in international and national security law at the council on foreign relations where he directs the program on international justice. he served as the legal adviser for the u.s. department of state under secretary of state condoleezza rice from april 2005 to january 2009 earning the secretary of state's

distinguished service award. mr. bellinger received his bachelor's degree from the woodrow wilson school of public and international affairs at princeton university, his jd from harvard law and most recently a master's degree in foreign affairs from the university of virginia. we are fortunate to have him and his expertise with us today. our second witness today is professor robert chesney, the charles i. francis professor in law and associate dean for academic affairs at the university of texas school of law. professor chesney specializes in a broad range of issues regarding u.s. national security law such as military detention, the role of the judiciary in national security affairs and terrorism-represented professions. he is a nonresident senior fellow of the brookings institution as well as a team member of the council on foreign relations. previously, he served on president obama's detention policy task force. mr. chesney earned his bachelor's degree in political science and psychology from texas christian university and

subsequently graduated magna cum laude from harvard law school. we welcome his experience and expertise. the third member of our witness panel is mr. benjamin wittes, a senior fellow in governance studies at the brookings institution and co-director of the harvard law school brookings project on law and security. he is the author of "law and the long war: the future of justice in the age of terror," published in june 2008 and the editor of the 2009 brookings book "legislating the war on terror: an agenda for reform." mr. wittes co-founded and is editor-in-chief of the lawfair blog, a nonideological discussion of hard national security choices. between 1997 and 2006 he served as an editorial writer for "the washington post" specializing in legal affairs. mr. wittes is also an alumnus of oberlin college. we thank him for serving as a witness today and look forward to his insight into this complex

topic. our final witness is mr. stephen vladek, a law professor from american university washington college of law teaching courses in constitutional law, federal courts, international criminal law and national security law to name just a few. he's also a fellow at the center for national security at the fordham university school of law in new york city. mr. vladek has co-authored multiple legal textbooks and has served as a law clerk of appellate judges in both florida and california. he earned his bachelor's degree in history and mathematics from amherst college and his jd from yale where he served as executive editor of the yale law journal. we are pleased to have him with us today. we thank all of you for joining us and, mr. bellinger, we'll start with you. each witness has written statements that will be made a part of the record in their entirety. i ask that each witness summarize his or her testimony in five minutes or less. to help you stay within that

time, there's a timing light on your table. when the light switches from green to yellow, you will have one minute to conclude your testimony. when the light turns red, it signals that the witness' fiven minutes have expired. mr. bellinger, welcome. >> there we go. thanks very much, mr. chairman and members of the committee, for coming for this important hearing today. i dealt, as you heard, with many of the legal issues that are the subject of today's hearing when i served as the legal adviser for the national security council in the white house in the first term of the bush administration, and then i was the legal adviser for the state department in the second term of the bush administration. i was in the white house situation room on 9/11 and spent all eight years of my time dealing with many of these same issues. now, both the bush and the obama administrations have concluded that the targeted killing of al-qaeda leaders is lawful under both u.s. and international law under certain circumstances. let me start with u.s. law.

the president's legal authority derives from the authorization to use military force act of september 18, 2001, the aum act. and also from the u.s. constitution. the problem is the aumf is now nearly 12 years old, and congress should update it. it does not provide sufficient legislative authority for our military and intelligence personnel to conduct the operations necessary to defend against the or terrorist threats that we face a decade after 9/11. and it also contains inadequate protections for those targeted or detained including u.s. citizens. of course, in addition to the statutory authority granted by congress, the president also has broad authority under the constitution to take necessary actions to defend the united states against terrorist threats. the targeting, targeted killing of american citizens raises additional legal issues because u.s. citizens have certain constitutional rights under the fourth and fifth amendments of

the constitution even when they are outside the united states. but the extempt of those -- extent of those rights is not clear. no u.s. court has previously opined on the issue of what amount of process is due to an american outside the united states before being targeted by his own government. now, i agree with the principal conclusions of the justice department white paper that reportedly summarizes the laws applicable to killing an american citizen who is a senior operational al-qaeda leader. in particular, i agree that an american citizen who is a senior al-qaeda leader outside the united states does enjoy constitutional right to due process. but i also agree that it is sufficient due process for a senior informed government official to conclude that the individual poses an imminent threat of violence against the united states before targeting the individual with lethal force. i do not believe that prior

judicial review is currently required or should it be required before the u.s. government uses lethal force against an american citizen who is a senior al-qaeda leader outside the united states. now, relevant to this committee the congress may still want to specify the conditions and certain processes for targeting an american, and this committee may want to consider legislation on this issue. but these processes should reside inside the executive branch with appropriate notice to congress. now, both the bush and the obama administrations have also concluded that international law permits the united states to use force through drone strikes or other means to kill l al-qaeda leaders in other countries in certain circumstances. and i want to emphasize that it is important for the united states to follow international legal rules rather than use force arbitrarily. the executive branch and congress need to be aware that what is sauce for the goose is sauce for the ganderrer.

unless the u.s. government specifies clear international rules with which it is complying, the u.s. will lack credibility if it criticizes other countries such as russia or china who may use drones to conduct targeted killings with which the u.s. disagrees. ..

the speeches given by administration officials have been very valuable but the administration needs to do more to address growing international opposition to its use of drones. the administration needs to be more transparent about who it is targeting and the procedures it applies to ensure that its targets are appropriate and to limit collateral damage to civilians. i think the obama administration should be able to release after the fact the names and background information of at least some of the people it is targeted. the release of more information should help address the concerns that use targets individuals who do not pose significant threats. so in closing i want to commend this committee for holding this hearing and want to end with a plea for my -- more bipartisanship on counterterrorism issues. republicans and democrats will not always agree on the same approach to dealing with terrorism but these issues should not be used to divide the american people. we all face it, threat from

terrorism and we need to work harder to find bipartisan solutions to these difficult problems. thank you, mr. chairman. >> thank you, mr. bellinger. mr. chesney, well,. >> thank you, mr. chairman. thank you distinguished of the committee for the opportunity to be here to testify today. >> just pull a close. >> let me come straight to the point. the constitution does not require judicial process in the narrow circumstances at issue here today for the reasons mr. bellinger just stated and stated in the white paper. however, i believe that limited and carefully calibrated judicial role would be permissible as a constitutional matter and desirable as a matter of policy. so how might this be the case? need to bear in mind that there are two very distinct scenarios that arise when the government uses legal -- lethal force. the classics never comes to mind for most of us when we talk about armed conflict is that a soldier in giunta encounters a

situation that requires an instant judgment as to whether someone is in any or their shot should be taken, judicial involvement at this stage would of course be grossly impractical. i think that's relatively common ground. but that's not the end of the story. we are speaking this morning exclusively of a situation which the government is intentionally targeting a specifically identified person. unlike the classic armed conflict scenario i just described, the singer actually at issue here is a two-stage process with very different questions at issue, very different exigencies at different points in time. for better or worse there have been a flood of leaks that give the citizens of how this process actually unfolds currently. at stage one the question is whether the available intelligence suffices to establish that the nominate individuals is no sure within the scope of the government asserted targeting a story. if so that opens the door to the possible use of force later on should that person be located.

stage two or isa limit if and when the target actually is located. at that point time sensitive questions do arise as to whether, for example, the person that has been observed is, in fact, that nominated target and then one of the circumstances would allow for particular attack to be lawful and desirable. my point is that stage two is akin to the classic time sensitive singer i first described that stage one is quite different. indeed, it's no accident that based on the public report of what takes place within the obama administration at stage one, it anyways results a judicial process already. they are put before a group of debate and discussion, multiple parties weigh in and debate what, if anything, the intelligence suffices to prove, and debates take place regarding the notional legal boundaries the government target authority. the point is judicial involvement stage one would be relatively much less intrusive, much less unconventional than it would be a stage two. and while i do not think it's

possible to say that the fifth amendment due process clause clearly requires adoption of a system for review of the stage when issues, and while i rushed to add that, of course, there is no current way to get that review, not unless and until congress acts, i do think that the due process interest of the individuals involved who, after all, may not actually be senior operation al qaeda leaders after all, suffices to counter balance the competing article to concerns that a proposal for judicial review in stage one would otherwise raise, or would raise. let me clarify precisely what is i think a judge can properly be asked to do in this so-called stage one review. there are two of us to the. one task would be to confirm or clarify the law with respect to notionally which u.s. persons could be targeted. this could result in affirmation of the white papers position in the attorney general pryor speech on the subject, perhaps a result in a narrower view or broader view but a judge could make that determination. whatever the result of that

inquiry, the court's task be to determine whether the information that's been put forward to suggest a particular american within the scope of that authority is sufficient to the task. if the categories defined simply in terms of membership in any force which is effectiveeffective ly what goes on at the guantánamo habeas proceedings currently the court would be able to consider that question, the question course and been grappling with for the last four years. if instead the test something along the lines of the white paper test it would be more complicated. sort of the court at that stage could consider the persons organizational links, position in the organization. asked eminence which, of course, an essential part of the white paper test, if you met a strict definition of eminence which is not what the white paper is talking about, that sounds like a stage two determination that can only be cited at a time exigent moment. the white paper describes a form of eminence that is probably

better thought of as constant and continuing organizational commitment to attack. that could be assessed at stage one. feasibility of capture in contrast is a stage two issue not something that judges can appropriately intervene with or review at stage one. i'm out of time so i'm closely by quickly noting that it is an objection comes from a different direction to this proposal, and that would be the article iii jurisdiction of the courts could not extend a situation like this which should be an ex parte proceeding. it would be a significant issue. it's not obvious the courts have the power to do this. however, i think the analogy to the fisa system is a good one or i know we'll hear more about this from my colleague, professor vladeck. suffice it to say that in the fisa context, there's very little actual prospect of underserved testing of the fisa orders that are issued to any in iran happens and when it does it's always done an ex parte basis anyways. thanks for your patience and i look forward to answering your questions. >> thank you.

as to what is, thank you very much. >> thank you, mr. chairman. members of the committee, for inviting me to testify. on the question of when the united states may lawfully target alleged american terrorists overseas, i want to explain and defend the legal rationale underlying the administration's lethal targeting of a u.s. citizen in the narrow circumstances of a person who is abroad and believe to be a senior operational leader of al qaeda or its associated forces. the ability to kill one of its own citizens is one of the most awesome and terrifying powers of people, people can invest in its cover. and the power to do this without judicial check is certainly a nominally in a society that provides judicial review of countless lesser exertion of government power. as federal district judge john bates who presided over the case of road how is it that judicial

approval is required when the united states decides to target a u.s. citizen overseas for electronic surveillance, but that according to the government judicial scrutiny is prohibited when the united states decides to target a u.s. citizen overseas for death? yet there's something equally terrifying, i would suggest more terrifying, about a government unwilling as a consequence of its own legal views to protect its people from ongoing threats of attack from its citizens overseas. in dealing with major al qaeda figures overseas who hold american citizenship, therefore, the obama administration has therefore confronted a slippery slope with not one, but two distinct bottoms. down one side lies a government empowered to do terrible things without sufficient legal justification or oversight. down the other side lies a government powerless to confront the very real threats to the safety and lives of its citizens

while terrorist figures operate with impunity from sanctuaries in ungoverned spaces. it's not enough to avoid sliding down one of these slippery slopes. u.s. policy must avoid both. with that as background let's consider for them over the targeting powers that the obama administration is not claiming with respect to americans overseas who thought themselves with the enemy. it is not claiming the authority to target any such american citizen, only an american citizen who is a senior operational leader of al qaeda or one of its forces. it is not claim the authority to target even such a senior operational terrorist, if his capture is a feasible alternative. it is not claiming the authority to target an american citizen who poses no imminent threat to american lives. and it is not committee authority to act without compliance with the laws of war. given this rather restrictive

posture, it is not surprising that there's only one reported case of u.s. forces actively targeting a specific american citizen with lethal force -- with lethal force. this has forced the city or components, each of them in my view clearly correct. first, the united states is in a state of armed conflict with al qaeda, the taliban and its associated forces. second, in this armed conflict as indeed any armed conflict, the united states is lawfully entitled to target the enemy with lethal force. third, there exists no general immunity from targeting for u.s. citizens who sign up to wage war against the own country. and forth, whatever the constitution's due process guarantees they require before targeting a u.s. citizen, these requirements are more than satisfied by a reduced judgment that a person like anwar on awlaki meets the narrow test for

targeting. to understand why this position must be correct, consider a domestic hostage situation in such a situation even law enforcement will use targeted killings and it will do so without judicial preapproval when the threat to the lives of the hostages is adequately serious. nobody takes the position of such actions constitute unlawful extrajudicial killings. i submit the case that truly meets the administration's legal test, like anwar all awlaki is not profoundly different from this hostage situation. now, mounting chorus of critics has insisted that judicial review must be a feature of the legal framework that authorizing the targeted american nation. would've the merits of proposals to create judicial review, and this is an extremely difficult question, one point is very clear, current law simply does not provide for prospective judicial involvement in

targeting decisions. it's therefore hard to fault attorney general holder for having failed to bring the anwar al-awlaki case for prospective review before a court that does not exist. in summary, the obama administer just taken a measured and series position concerning the targeting of americans overseas, one that reserves the right to target in the most extreme cases while leaving open the question of the minimum criteria for targeting to be lawful and less dire circumstances. it's a position that is neither radical nor surprising, and ought not raise concerns that the admin -- the administration is claiming undue presidential power. thank you for this opportunity share my views in this important subject. i look forward to questions. >> star black, welcome. >> thank you, mr. chairman. members of the committee, it pledged to be back before you again. i want to start from